Tenants are getting smaller, the federal government is getting stingier, and the competition is getting steeper. In short, the office market in the Washington area is starting to function less like an isolated bubble bolstered by the federal government and more like other major metropolitan markets with ebbs and flows tied to the nation’s overall economic health.

That’s at least the bleak assessment of Greg Leisch, CEO of Alexandria-based market tracking company Delta Associates Inc. Leisch played the role of bad-news bearer during the annual Trendlines event Thursday evening in conjunction with Delta's real estate brokerage affiliate Transwestern.

“What I have to say, you may want to be sitting down,” Leisch told a crowd of more than 1,100 at the annual event in D.C.'s Reagan Building. “We’re now in an era of a more competitive marketplace for the foreseeable future.”

Delta estimates the Washington region posted negative absorption of about 3 million square feet in 2012, though some brokerages put thefigure well in excess of that. Leisch said some of negative absorption was due to factors that were beyond landlords’ control but still left them vulnerable.

Prime among them: The federal government’s real estate arm, the General Services Administration, while one of the largest consumers of real estate in the region, accounted for just 12 percent of leasing activity last year. That was down from 65 percent two years ago and from 45 percent in 2011.

Beyond the federal government, private companies also embarked upon what Leisch called “densification,” a fancy term for companies moving to smaller, more efficient space. Over the past year, businesses like law firms Arnold & Porter LLP, Covington & Burling LLP and Pillsbury Winthrop Shaw Pittman LLP have signed leases to move to newer and more efficient buildings, in each case shedding a substantial amount of space in the process.

That vulnerability was one of six “megatrends” Leisch identified. He also expects parts of the private sector will begin to help offset losses from the federal government, including in those in professional services, health care and in education.

Another megatrend: Landlords should prepare for less demand for office space. Leisch noted that the annual demand for space in 10-year blocks has shrunk from about 10.3 million square feet in the 1980s to about 4.4 million for the past decade.

At the same time, competition among local and state governments has fueled a push to relax building restrictions and increase financial incentives in parts of the region. That intervention has made it easier for developers to begin new projects and recruit new tenants.

In the the fifth megatrend, Leisch said, landlords must come to terms with more competition for tenants, higher vacancy rates and lower rent growth. In other words, he said, landlords will have to “recalibrate our expectations.”

Sound depressing? Well, there is a bright side. Actually two of them. The first is that developers will prosper even in this climate if they have deep pockets, good financing, top-tier design, strong management, marketing and superior locations. And, he said, time should heal the rest of the industry’s wounds.

“I don’t believe the sky is falling, and I do believe absorption will turn positive in the years ahead,” Leisch said. He estimated the region’s vacancy rate will improve from 13.4 percent to 10.6 percent — in 2017.

Rental rates are likely to keep falling until then but will level out once they reach what Leisch calls the equilibrium zone, a vacancy rate between 10.7 percent and 10.9 percent. When the rate gets lower than 10.7 percent rents should start to improve again.